No Qualms

States, cities, companies strive to get China's business

July 10, 2005|By Michael Oneal, Tribune staff reporter

From where Phil James sits, the hullabaloo in Congress over Chinese investment in the United States makes about as much sense as the political hand-wringing in the 1980s over the so-called "Japanese invasion."

What James knows is this: Without Chinese investors he never would have been able to buy and resuscitate the ailing Ingersoll Production Systems machine tool business in Rockford. And he wouldn't have been able to do the same thing with a similar company in Michigan.

All told, he figures, Chinese investment capital saved 155 jobs directly and supports many more at the U.S. companies Ingersoll contracts with.

"This was a very good deal for both of us," James said. "American interest in machine tools is severely diminished."

Chinese investment in the Midwest--as elsewhere in the world--has amounted to a trickle so far. But that is likely to change. Despite the angst in Washington, business people and economic development officers throughout the region have been falling all over themselves to attract Chinese investment capital to their communities.

Faced with years of job losses and factory closings, development directors see only opportunity in China's growing interest in U.S. companies, brand names and management expertise. The Consulate General of the People's Republic of China in Chicago estimates that Chinese investors have put less than $100 million in the region to date. But most experts believe that interest in companies like Ingersoll is just the beginning of a wave of investment that eventually could match or exceed the Japanese influx of capital since the late 1970s.

"You can't protect against a wave," said Stephen Akard, Indiana's director of international development. "We have to be on top of that wave."

Akard has some startling statistics to back up his thinking. He notes that the Japanese have sunk $7 billion into the Indiana economy over the years while creating or preserving 40,000 jobs.

When it cranked up production 16 years ago the Subaru plant in Lafayette, Ind., was a lightning rod for protest in some circles. But as manufacturing jobs in the region go the way of traditional farming jobs before them, no one is complaining about the Japanese now.

That may explain why the governors of Iowa, Wisconsin and Missouri have already visited China to sing the praises of their states to potential investors. Minnesota Gov. Tim Pawlenty plans to lead a delegation of 200 state officials and business people to China in November. And Mayor Richard Daley, armed with glossy Power Point presentations hailing Chicago's central location, diversity and business friendliness, made a pilgrimage to Shanghai last year trying to drum up interest in the city.

"China is going to be the single most important shaper of global economic activity," said the trip's organizer, Marshall Bouton, the president of the Chicago Council on Foreign Relations. "We can and should have a piece of that action."

Chicago lawyer John Rogers, the president of a new organization called the MidWest U.S.-China Association, said the Chinese are flummoxed by the reaction in Congress to the recent $18.5 billion bid by Chinese energy form CNOOC Ltd. for California-based Unocal Corp.

Talking on the phone from a hotel room in Shanghai, where he was working to drum up interest among Chinese investors, Rogers said, "they keep asking me, `Why are they questioning this? Don't they want us?'"

Stevenson recruited

Less than two years ago an agency of the Chinese government recruited former Illinois Senator Adlai E. Stevenson III to launch the Midwest U.S.-China Association as a non-profit volunteer group to help Chinese companies figure out how to make direct investment in the U.S. and visa versa.

Stevenson makes no apologies. He points out that the Chinese government is already propping up the U.S. economy with its massive purchases of U.S. Treasury securities. Encouraging investors to replace paper assets with hard assets, he said, is a more productive way to benefit from the capital.

"Instead of sucking our thumbs and bashing them," Stevenson said, "let's make this into an opportunity."

Phil James at Ingersoll is way ahead of him.

James, now 63, worked at Ingersoll for many years before leaving for another opportunity in 1997. In 2000, however, when financial problems threatened to drive the former machine tool giant into the ground, the controlling Gaylord family began to put the various pieces of the company on the block. An Italian outfit bought Ingersoll Milling Machines Co., the biggest part of the original company. A private equity firm recruited James to lead a buyout of the smaller part, Ingersoll Production Systems.

James said the original equity backer got cold feet when it saw how cyclical the machine tool business could be. So he shopped the deal to 11 other potential investors in the U.S.